Corporate strategy for a leading infrastructure company in India

Abstract

The Indian economy expanded 7.2% in the previous year and is expected to grow at 8.5% in fiscal FY11, making it the world s second fastest growing economy after China. According to latest reports1, in the next 20 years, urban population in India will grow to 590 million, twice the population of USA today, 70% net new employment will be generated in cities, and 68 cities will reach a population of 1 million, compared to 35 cities in Europe today. As India continues to grow, the GDP per capita (nominal), which is at USD 1000 per annum is expected to reach USD 3000 per annum by 2025- 2030. As a result of this growth the consumption will increase, the demand for infrastructure and energy will shoot up. New sectors will open up and some of the existing sectors will become more lucrative. With this growth in the background, a leading infrastructure company in India wants to evaluate its opportunity space, and therefore is looking for sectors it should focus on for its intended growth. For confidentiality reason, the name of the company will is not disclosed. In this report, I will refer this company as XYZ group. As part of this project, I have analyzed the growth and diversification strategies of infrastructure companies in Brazil and Mexico. Based on the growth trajectory followed by these companies, I have provided recommendations to XYZ group on the sectors that it should focus on for its intended growth. The companies chosen for this study are leading infrastructure companies such as Odebrecht S.A and Camargo Corrêa in Brazil and Empresas ICA, S.A.B. de in Mexico. Based on the research, it can be concluded that these companies have fundamentally followed a similar strategy for diversification and growth. On one hand to they have taken advantage of the growth in the home economies and diversified into unrelated sectors, on the other hand they have also internationalized to gain expertise and develop competitiveness in international markets. Internationalization has helped them to better respond to the public infrastructure demands in the domestic market. The report is organized into three sections. Section I contains the energy and infrastructure demand projections for 2025-2030. These projections are based on the World Energy Outlook 2010; McKinsey Global Institute report in India s urbanization and various reports from Planning Commission and Investment commission of India. On the infrastructure side, I have excluded the social infrastructure and hence it is not in scope of this study Section 2 provides an introduction of the companies in Brazil and Mexico that are a part of this study, followed by a synthesis of their growth and diversification strategies. The data on the companies has been collected from secondary sources such as annual reports, company website and publically available databases such as Bloomberg and ThomsonOne. Finally, the recommendations to XYZ group are present in Section 3. Among other factors, the recommendations are based on the diversification strategies that have been adopted by the reference companies in Brazil and Mexico and the projected demand potential in infrastructure and energy sector in 2025-2030 timeframe.